ASSESSMENT OF ACCOUNTING PRACTICE AND ITS PROBLEMS OF

ETHIOPIAN RED CROSS SOCIETY: IN CASE OF HARARI REGIONAL STATE

BRANCH.

BY

HAMZA DAWID

HARAMAYA UNIVERSITY
COLLEGE OF DISTANCE AND CONTINUOUS EDUCATION
DEPARTMENT OF ACCOUNT AND FINANCE

SEPTEMBER, 2021
HARAMAYA, ETHIOPIA
ASSESSMENT OF ACCOUNTING PRACTICE AND ITS PROBLEMS OF
ETHIOPIAN RED CROSS SOCIETY: IN CASE OF HARARI REGIONAL STATE
BRANCH.

By

HAMZA DAWID

ID NO. HU/AC/021/14
ADVISOR: MR. NESRU KASIM

HARAMAYA UNIVERSITY
COLLEGE OF DISTANCE AND CONTINUOUS EDUCATION
DEPARTMENT OF ACCOUNT AND FINANCE

ASENIOR ESSAY SUBMITED IN THE PARTIAL FULFILLMENT OF THE

REQUIRMENT FOR BACHLOR OF ART (BA) DEGREE IN ACCOUNT AND
FINANCE.

SEPTEMBER, 2021
HARAMAYA, ETHIOPIA

2
 Declaration
I here under declare that, this senior essay is my original work and has not been presented for
a degree in any other university. All information obtained from other source used for the
senior essay has been properly acknowledged. This senior essay, which Entitled “Assessment
of Accounting Practice and Its Problems of Ethiopian Red Cross Society: In Case Harari
Regional State Branch” is approved as the original work of Hamza Dawid.
Name: _____________________________________________________________
Signature: __________________________________________________________
Date: ______________________________________________________________
This Senior Essay has been submitted for examination with my approval as university
advisor.

Advisors
Name: _________________________________________
Sign: ______________________________________
Date: __________________________________________

3
 Acknowledgement
First of all, I would like to thank the almighty God for being with me all throughout my
journey. I would like also to express my deepest thank to my advisor Mr. Nesru Kasim who
has given me his unreserved help and persistent guidance, creative suggestions and critical
comments throughout the development of this paper. I am also grateful thank to the finance
staff of the Ethiopian Red Cross Society particularly accountant of the organization for his
cooperation in providing relevant information and data. Last, but not least, I would like to
thank to my family and all my friends, for their love, encouragement and support throughout
the study.

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 Contents
Declaration ................................................................................................................................3
Acknowledgement......................................................................................................................4
List of Table...............................................................................................................................7
Abstract......................................................................................................................................9
CHAPTER ONE......................................................................................................................10
1. INTRODUCTION................................................................................................................10
1.1. Background of the Organization.......................................................................................10
1.2. Statement of the Problem..................................................................................................11
1.3. Basic Reach Question.......................................................................................................12
1.3 Objectives of the Stud........................................................................................................12
1.3.1 General Objective........................................................................................................12
1.3.2 Specific Objectives......................................................................................................12
1.4 Significance of the study....................................................................................................12
1.5. Scope of the Study............................................................................................................12
CHAPTER TWO......................................................................................................................14
2. REVIEW OF RELATED LITERATURE............................................................................14
2.1. The Concept of Accounting.............................................................................................14
2. 2. Definition and Characteristics of Non-Governmental Organization................................14
2.3. Not For-Profit Organization..............................................................................................15
2.4. Funds and Fund Accounting..............................................................................................15
2.5. Fund Accounting by Non-Profit Organization..................................................................15
2.5.1. Unrestricted Fund.......................................................................................................16
2.5.2. Restricted Fund...........................................................................................................16
2.5.3. Endowment Fund........................................................................................................16
2.5.4. Agency Fund...............................................................................................................16
2.5.5. Annuity Fund..............................................................................................................17
2.5.6. Life Income Fund.......................................................................................................17
2.5.7. Loan Funds.................................................................................................................17
2.5.8. Plant Fund...................................................................................................................17
2.6. Accounting for Not-For Profit Organizations...................................................................17
2.7. Valuation of Fixed Assets..................................................................................................18

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2.8. Basics of Financial Statements..........................................................................................18
2.8.1. Balance sheet..............................................................................................................18
2.8.1.1. Limitations of Balance Sheet...............................................................................19
2.8.2. Income Statement.......................................................................................................20
2.8.2.1. Limitations of Income Statement:........................................................................20
2.8.3. Cash Flow Statement:.................................................................................................20
2.8.4. Statement of shareholders' equity’s............................................................................20
2.9. Accounting for Revenues, Gains, and Support.................................................................21
2.2. Review of previous empirical study..................................................................................21
CHAPTER THREE..................................................................................................................22
3. RESEARCH METHODOLOGY AND DESIGN................................................................22
3.1. Research Design................................................................................................................22
3.2. Study Area.........................................................................................................................22
3.3. Source of Data...................................................................................................................22
3.4. Population, Sample and Sampling Techniques.................................................................22
3.5. Instrument of Data collection............................................................................................23
3.5.1. Questionnaires............................................................................................................23
3.6. Procedures of Data Collection..........................................................................................23
3.7. Data Analysis Techniques and Presentation......................................................................24
CHAPTER FOUR....................................................................................................................25
4. DATA PRESENTATION AND ANALYSIS........................................................................25
4.1 Overviews..........................................................................................................................25
4.2. Background of the Respondent’s......................................................................................25
4.3 Accounting and Reporting Practice....................................................................................26
4.5. Budgeting System ERCs...................................................................................................31
4.6. Accounting System............................................................................................................33
4.7. Recording Technique.........................................................................................................34
CHAPTER FIVE......................................................................................................................35
5. SUMMARY OF FINDINGS, CONCLUTION AND RECOMMENDATION...................35
5.1. Summary...........................................................................................................................35
5.2. Conclusion.........................................................................................................................35
5.3. Recommendation...............................................................................................................36
REFERENCE...........................................................................................................................37
APPENDIX..............................................................................................................................39
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 List of Table
Table 1: Background of the respondent’s education, field study and experience…………. 23
Table 2: Response on whether they have a clear understanding of accounting practice….. 24
Table3: The opinion of respondents concerning the valuation of fixed assets ………25
Table4. The opinion of the respondents concerning accounting method……………. 25
Table 5: The opinion of the respondents about the accuracy of record keeping (book
keeping)26
Table 6: The opinion of respondents about the accuracy of record keeping ………………..26
Table 7: Response on financial statement ………………………………………………27
Table 8: The opinion of respondents about the reliability and relevance financial statement 27
Table 9: Response on disclosure on financial statement --------------------------------------- 27
Table 10: Response on the record it gifts in kind-------------------------------------------------- 28
Table 11: Response on how do you record gifts--------------------------------------------------- 28
Table 12: The opinion of respondent regarding to the budgeting system---------------------- 29
Table16: the opinion of respondents regarding to the organization accounting system, 31
Table 17: to know about entry system----------------------------------------------------------------31

7
ACRONOMY
NGO: Non- Governmental organizations
ERCS: Ethiopian Red Cross Societies
NFPO: Non For-Profit Organization
ERCSHRB: Ethiopian Red Cross society Harari Regional Branch
NS: National Society

8
 Abstract
The intention of the study was focused on the assessment of accounting practice and its
problems in ERCS Harari Regional State Branch. In order to achieve the objectives of this
study and get relevant and sufficient information on research problem, descriptive survey
design was employed. The total population of the organization is 31 respondents. All of them
were selected through census sampling techniques. Quantitative data was collected through
closed ended questionnaires were analyzed using frequency and percentage t by using SPSS
version 20. The data gathered through open ended question were qualitatively analyzed to
triangulate the quantitative data obtained. Finally, as a conclusion Ethiopian Red Cross
society employees or members have a clear understanding of accounting practice and
financial reports covering all funds and financial transactions and the recommendation is to
avoid dependency Ethiopian Red Cross society should concentrate more on internal activities
and fund raising options. Key word: accounting practice, financial statement,

9
 CHAPTER ONE
1. INTRODUCTION
1.1. Background of the Organization
The Ethiopian Red Cross Society was established by government decree on 8 July 1935
and became 48th member of the International Federation of Red Cross and Red Crescent
Societies on September 25 of the same year. The NS is an independent organization
established and recognized by law through a National Charter adopted in 31 October
1947.The Charter has undergone various parliamentary revisions, the last being that of
1999.ERCS has a structure consisting of 11 regional offices, 33 zonal branches, 88 district
(woreda) branches, and more than 4,500 committees (Kebele Red Cross Committees) at
grass root-level.7 The NS is governed by elected board members at national and branch
levels. The boards set the general direction of the National Society. A national assembly
is convened every two years and elections of governing board members are held every four
years. The ERCS began its humanitarian operations to the wounded soldiers sick combatants
and civilian victims of the Italian war of aggression in 1935. Since its establishment it has
been rendering various services to communities vulnerable to and affected by natural and
manmade disasters through provision of ambulance service, community based first aid
service, emergency responses, restoring family links, essential drug program, water and
sanitation, HIV/AIDS and related services. It also runs disaster risk reduction programs like
food security, climate change adaptation, livelihood diversification and institutional capacity
building interventions with the aim of creating resilience households and communities.
The Ethiopian Red Cross Society Harari regional Branch is the first branch established in
1975 EC, during Ethio-Somali conflict. Harari Regional branch provides humanitarian
assistance in Harar town and 3 woreda cross committees. The branch has 22 volunteer and
3996 members. The Ethiopian Red Cross society Harari regional Branch based on the charter
of the national society to carry out disaster response and regular humanitarian services. With
the current socio economic situation of the region the red cross branch humanitarian free
services (ambulance, first aid, HIV/AIDS prevention, care and support program, tracing and
essential drag distribution) and its other health and health related development programs are
viewed with a high degree of appreciation by the beneficiaries and the public at large. Like
Ethiopian Red Cross Society operating in the country, Ethiopian Red Cross Society Harari
branch also engages in a number of projects in the country mainly humanitarian services
including disaster relief, first aid, training, basic health care, blood donation services, health
and hygiene promotion, HIV and AIDS support, and water and sanitation (ERCS, 2015).
10
Basically, there are also other critical issues to be dealt with in this project implementation.
Financial constraints are among the basic factor to be assessed for the success of such project.
This study is concerned with the accounting practices and its problems the case of ERCS in
Harari Regional branch. They are distinctive from other organization by (i) hybrid structure
in terms of status features, (ii) service being the main objective, (iii) absence of profit motive,
(iv) public support, (v) accountability to the resource providers by stewardship function
through appropriate accounting control system such as fund accounting and budgeting and
(vi) democratic management. In the context of present study, the following major accounting
features of ERCS are worth noting: basis of accounting, financial statement, and budgeting
system ERCS, source of fund, accounting system.
1.2. Statement of the Problem
An accounting practice is intended to enforce affirms accounting guidelines and policies, it
exists as the daily recording of financial data that is important to the evaluation and
monitoring of the organization. Therefore, organizations have their own accounting practice
based on the characteristics of their service. In order to provides the users with necessary
information. All accounting system is the means by which a company records and stores the
financial and managerial information from its transaction so that it can retrieve and report the
information in an accounting statement (Bazley, 2010)

According to PHIL (2014), stated that, the problems of most NGOs is face in applying the
theories and practices of appropriate accounting system to be changes that happen through
time, growth that occurred since the establishment of the organization, and increase in
business transaction based on accounting cycle, generally accepted accounting
principle(GAAP), computerized accounting system and internal control system. But, other
unstudied problems most NGOs faces some problems in implementing and applying the
theories and practices of appropriate fund accounting some of them are: - variation between
budgeted and actual and their consequences in the accounting practice, not preparing
financial reports covering all funds, if promised donation is not obtained to finalize the
project, financial statements does not include disclosure of promise to give and financial
transactions during the period. Based on those problems the study was focused on an
appropriate implementing and applying the theories and practices of appropriate accounting
system. Thus, the study was focused on the above unstudied issues and forward possible
conclusion and recommendation at the end.

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 1.3. Basic Reach Question
1) To what extent the accounting practice of Ethiopian Red Cross society in Harari
branch?
2) To what extent the financial statement of the organization includes disclosure of
promise to give?
3) How to examine the consequence of accounting practice if there is variation between
budgeted and actual activity Ethiopian Red Cross society in Harari regional branch?
4) What are the problems in accounting practice of the ERCS in Harari regional branch?
1.3 Objectives of the Stud
1.3.1 General Objective
The general objective of this study is to assess the accounting practice and its problem in case
of Ethiopian Red Cross society in Harari regional branch.
1.3.2 Specific Objectives
The study will have the following specific objectives: -
1) To assess the accounting practice of Ethiopian Red Cross society in Harari regional
branch.
2) To assess the financial statements of the organization includes disclosure of promise
to give.
3) To examine the consequence of accounting practice if there is variation between
budgeted and actual activity.
4) To assess the problem in accounting practice of the ERCS in Harari regional branch.
1.4 Significance of the study
The study was beneficiary to the management of Ethiopia Red Cross Society, other local
nongovernmental organizations and for any other researcher in identifying the proper usage
of accounting system in accordance with accounting principles and standard of FASB. The
student researcher had gotten practical application before joining to the practical world.
Besides this study was helped the decision maker to decide on the financial statement of the
organization by making comparisons of the theoretic aspect with the actual practice of the
organization. At the end this research could serve as secondary source for further study.
1.5. Scope of the Study
The study was focused on the assessment of accounting practice and its problems in Ethiopia
Red cross society of Harari Regional Branch far from 526 km from the head office in Addis
Ababa. Among the different accounting practice this research paper was focused on basis of

12
accounting, financial statement, budgeting system ERCS, source of fund, and accounting
system in ERCA by making a case study of the ERCS Harari Regional Branch.

1.6 Limitation of the study

The limitation would be unwillingness of employee of the organization to give desired
information, lack of sufficient information or desired data, lack of competent respondents; the
respondents for study was not be competent enough to understand and respond questions that
would be raised during questionnaire, lack of experience in doing research paper before and
lack of sufficient reference material which is related or concerned with the topic that is under
study.

1.7. Organization of the paper

This paper sub-divide in to five chapters. Each chapter of the paper would illustrate different
aspects of the research work chapter one deals with the introduction of the paper it covered,
background of the organization, objective of the study, statement of problem, significance of
the study, scope and limitation of the study, Chapter two on the other hand deals with review
of literature both theoretically and empirically. Chapter three deals with research design, and
methodology, chapter four data analysis and presentation, chapter five summary of findings,
conclusions and recommendation.

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 CHAPTER TWO
2. REVIEW OF RELATED LITERATURE
2.1. The Concept of Accounting
Accounting is the process of identifying, measuring and communicating economic
information to permit informed judgments and decision by users of the information (Bob
Schneider, 2010). Accounting is a service activity to provide quantitative information about
economic entities. The information is primarily financial in nature and is intended to be
useful in making economic decisions. Accounting reports are used in describing the activity
and financial status or many different kinds of economic entities (Kermit & Larsson, 1990).
The major purpose of accounting system is to provide us full information to both external
users and to the company’s managers for making operating decisions. Many transactions
result in important financial managerial information. All accounting system is the means by
which a company records and stores the financial and managerial information from its
transaction so that it can retrieve and report the information in an accounting statement. All
companies have accounting system ranging from the very simple such as check book to the
complex involving the use of networked computers (Bazley, 2010). The basic accounting
model provides a frame work for accounting system and is the basis for recording transaction.
This model for the corporation called the residual equity theory modes is usually expressed in
an equation (Bazley, 2010). The way in which management is given the information for the
use conducting the affairs of business and in reporting to owners, creditors and other
interested parties is called the accounting system. In general sense an accounting system
include the entire network of communications used by a business organization to provide
needed information (Fees Warren, 1998). Basics of financial accounting system that a
company can use it either a manual or a computer accounting process regarding to be
primarily interns of manual system the components of an accounting system include the
frame work for operation of the system. The input source document the records used to store
accounting information of the output report (Bazley, 2010)

2. 2. Definition and Characteristics of Non-Governmental Organization

A Non-Governmental Organization (NGO) is an organization that is neither a part of a
government nor a conventional for-profit business. It usually set up by ordinary citizens;
NGOs may be funded by governments, foundations or businesses. Some avoid formal
funding altogether and are run primarily by volunteers. NGOs are highly diverse group of
organizations engaged with a wide range of activities, and take different forms in different

14
parts of the world. Some may have charitable status, while others may be registered for tax
exemption based on recognition of social purposes. Others may be fronts for political,
religious or other interest groups (Regina E, H., & Densie N, 1994, P-1). Not for profit
originations (NPO are characterized) by the absence of owners and dependence on
contributions, dues, charges for services, and investment income for revenue rather than taxes
Characteristics
 Contributions of significant amounts of resources from resource providers
 Operating purposes other than to provide goods or services at a profit
 Absence of ownership interest like those of business enterprises (Kattelus, Recr &
Wilson, 2005, P 555)
Non-profit organization includes any organization that is exempted from payment of taxes
and whose primary purpose is to be benefit society. Nonprofit organizations are unlike
businesses because they don’t exist to earn a profit (Regina E, H., & Densie N, 1994, p 1-2))
2.3. Not For-Profit Organization
Not for-profit organizations are a legal and accounting entity that is operated for the benefit
of Sthe societies whole rather than for benefit of an individual (Larson, 2005). Not for profit
accounting specializes in recording, reporting and planning the operations of various
governmental units and other non-for profit organizations such as churches and educational
institutions. An essential element is an accounting system that will insure strict adherence on
the part of management to restrictions and other requirements imposed by law, by other
institutions or by individual donors (Fees &Warren, 1998)
2.4. Funds and Fund Accounting
A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash
and other financial resources together with all related liabilities and residual equities or
balances and changes there in. which is segregated for the purpose in accordance with special
regulations, restrictions or limitations. A fund in the not-for profit sense is a self- contained
accounting entity with its own asset, liability, revenue, expenditure or expenses and fund
balance or other equity account and with its own ledger. (Lynn &Free Man, 2004)
2.5. Fund Accounting by Non-Profit Organization
The internal accounting until for many non-profit organizations is the fund, which is an
accounting entity, with a self-balancing set of accounts recording cash and other financial
resources, together with all related liabilities and residual balances, and changes there in,
which are segregated for the purpose of carrying on specific activities or attaining certain

15
objectives in accordance with special regulations, restrictions, or limitations Separate funds
may be necessary to distinguish between assets that may be used as authorized by the board
of directors and assets whose use is restricted by donors. Funds commonly used by some of
the NFP.
 Unrestricted fund (sometimes called unrestricted current fund, general fund)
 Restricted fund (sometimes called restricted current fund or current restricted fund)
 Endowment fund
 Agency fund (sometimes called custodian fund)
 Annuity fund and life income fund (sometimes called living trust fund)
 Loan fund
 Plant fund (sometimes called land, building and equipment fund). The above
important and basic funds are presented below (Larson, 2005)
2.5.1. Unrestricted Fund
It includes all the assets of the non-profit organization that are available for use as authorized
by the board of director and are not restricted for specific purposes. Thus, similar to the
general fund of governmental entity, an unrestricted fund is residual in nature.
2.5.2. Restricted Fund
Nonprofit organizations establish restricted funds to account for assets available for current
use but expendable only as authorized by the donor of the asset. Thus, a restricted fund of
NFP organization resembles the special revenue funds may be expended only for specific
purposes.
2.5.3. Endowment Fund
An endowment fund of a non-profit organization is similar to a non-expendable trust fund of
a governmental entity. A permanent endowment fund is one for which the principal must be
maintained in definitely in revenue producing investments. Term endowment fund may be
expended after the passage of a period of time or the occurrence of an event specified by the
donor of the endowment principal. A quasi endowment fund is established by the board of
directors of a non-profit organization, rather than by an outside donor.
2.5.4. Agency Fund
An agency fund of a non-profit organization is used to account for assets held by a non-profit
organization as a custodian. The assets are disbursed only as instructed by the owner. For
example, a non-profit university may act as a custodian of cash of a student organization. The
university disburses the cash as directed by the appropriate officers of the student

16
organization. The undistributed cash of the student organization is reported as a liability of
the university’s agency fund, rather than as a fund balance, because the university has no
equity in the fund.
2.5.5. Annuity Fund
Assets may be contributed to a non-profit organization with the stipulation that the
organization pay specified fixed amounts periodically to designated recipients, for a specified
time period. An annuity fund is established by; the non-profit organization to account for this
arrangement. At the end of the specified time period for the periodic payments, the
unexpended assets of the annuity fund are transferred to the unrestricted fund or to a
restricted fund or endowment fund specified by the donor.
2.5.6. Life Income Fund
A life income fund is used to account for stipulated payments to a named beneficiary during
the beneficiary’s time. In a life income fund, only the income is paid to the beneficiary. Thus,
payments to a life income fund’s beneficiary vary from one accounting period to the next, but
payments from an annuity fund are fixed in amount.
2.5.7. Loan Funds
A loan fund may be established by any non-profit organization, but loan funds most
frequently are included in the accounting record of colleges and universities. Student loan
funds generally are revolving; that is a sold loan are repaid, new loans are made from the
receipts. Loans receivable are carried in the loan fund at estimated realizable value;
provisions for doubtful loans are debited directly to the fund balance ledger account, not to an
expense account. Interest on loans is credited to the fund balance account, ordinarily on the
cash basis of accounting.
2.5.8. Plant Fund
The components of plant funds vary among non-profit organizations. In addition to plant
assets, plant funds may include cash and investment earmarked for additions to plant assets
and mortgage notes payable and other liabilities collateralized by plant assets. Sinking fund
assets set aside for retirement of debt incurred to acquire plant asset also may in plant funds.
2.6. Accounting for Not-For Profit Organizations
Accounting is the process of measuring economic events. It is the language in which all
financial management is conducted. Accounting supports the management of non-profit
organizations in several ways. For one, the accounting system and the financial statements it
produces provide a historic record of the financial activities and status of an organization.
These can be used to assess the organization’s steward ship of the resources entrusted to it.
17
(Steward Ship is the responsibility for using resources in the ways intended by their donor.)
Accounting also provides the basis for the diagnostic tests and measurements known
collectively as financial Even though part or all of the revenue is to be waived or reduced.
Suppose for example that the nonprofit community hospitals are patient service records for
June1999 include the following journal entries are appropriate for the community hospitals in
addition to cash contribution NFP organization often receives contribution of material,
services and facilities. For instance, a hospital receives free drugs or a university may receive
free operating services. The contribution material is recorded in the inventories ledger
account at its current fair value with a credit to a revenue account in unrestricted fund.
(Larson, 2005)
2.7. Valuation of Fixed Assets
The fixed asset accounts should be maintained on the basis of original cost or estimated on
the basis of original cost or the estimated cost if the original cost is not available or in the
case of gifts the appraised value at the time of received. Nongovernmental organizations
frequently acquire properties by gift rather than through purchase where assets are acquired
in this manner. On the other hand, the question arises as to whether the net appraised value
should be initially recorded as net figure or whether the donors original cost and a cumulative
allowance for depreciation should be set up on the NGOs units books. Since a recording of
donor’s original cost provides a better basis for subsequent depreciation. However, the
committee recommends this method of recording the asset in the accounts of NGOs units.
(Larson, 2005).
2.8. Basics of Financial Statements
Financial reporting system of a company utilizes its specially determined accounting
statements and rules of their application. Regulation and use of financial reports is
coordinated by national or international accounting standards. There are four main financial
statements.
 A balance sheet
 An income statement
 Cash flow statement and
 Statement of shareholder’s equity.
2.8.1. Balance sheet
Shows what a company owns and what it owes at the certain moment of time. It provides
details about company’s assets, liabilities and share holder equity. This provides the value of

18
firm’s assets (what a firm own), liabilities (what the firm owes to outsiders) and equity (what
the inside shareholders or owners own) on a particular date. The value of assets will equal to
the value of liabilities plus owners’ equity (A=L+E). Items in the balance sheet are listed
based on conservative principle; e. if estimating or in doubt of the actual value. The value of
assets is not being overstated and the value of liabilities is not being understated. Assets are
things that a company owns that have value. Assets include physical property and things that
non material but nevertheless exist and have value, such as trademarks and tents. In addition,
cash itself is assets in a balance sheet. Assets are generally listed based on how quickly they
can be converted (current and noncurrent assets) in to cash. Current assets include cash,
marketable securities, account receivable, inventory, prepaid expenses that are more liquid
than the long term (fixed assets) which include equipment, land, asset that are intangible and
valuable example, good will patents, deferred charges. Liabilities could include current
liabilities (example, bank advance, income tax payable, and accounts payable, accrued
expenses), deferred income tax (difference between the tax reported on the income statement
and tax reported on tax return), minority in subsidiary companies (representing outside
ownership in subsidiary companies) and long term debt (example, bonds, and capital leases).
Shareholder equity includes share capital (par or stated value of share received at the time of
original issues), paid in capital (when shares are sold for more than the par or stated value),
retained earnings/deficit (undistributed earnings). Equity is also expressed as “residual
interest” (E=A-L). E is negative the firms is technically bankrupt.
Net worth or book value refers to what is available to common shareholders and is given by:
Total asset- Total liabilities-preferred stock=Net worth. Net worth divided by numbers of
common shares outstanding will give us the book value per share. The market value is equal
to the price per share times the number of the number of share outstanding (also referred to as
the market capitalization of a company) we can estimate the intrinsic value of stock by using
discounted cash flow models.
2.8.1.1. Limitations of Balance Sheet
The balance sheet records the values of assets and liabilities in terms of their original cost.
This is especially misleading for fixed assets (that could have significantly changed in value).
It is also difficult to value intangible assets. Current assets are less troublesome; partly
because of their short-term nature (inventories and marketable securities are listed at lower of
their cost or market values) liabilities are also not biased (since they are generally contractual
and market values will be equal to their book values; for example, if the company has taken a

19
 loan, the birr amount of loan obligation does not change with time). Also, an analyst should
pay close attention to “off-balance Sheet Items”.
2.8.2. Income Statement
The income statement of provides information on the various revenue and expense items
during a certain period. Thus, this statement shows the total income generated in a certain
period. An income statement also shows the costs and expenses associated with earning of
that revenue. The end line of the statement usually shows the company’s net earnings or
losses. Items in the income statement are based on accrual principle i.e. transactions (such as
sales) are recognized when they occur and not when actual cash is received. Furthermore, the
expenses are matched to when the revenue is recognized and not when the actual payment is
made. The above principle makes it obvious that there could be wide discrepancy between a
firm’s revenue and actual cash flow.
2.8.2.1. Limitations of Income Statement:
In finance, the focus is on valuation that requires knowledge of expected cash flows rather
than historical earnings. Note net income does not equal cash flow. This is because the
income statement reports revenue/expenses when they are earned or accrued and not when
actual cash is received. Further, several items are subjectively determined (depreciation).
Also depreciation is based on historical cost of the asset. Thus, during periods of inflation,
depreciation expense will be understated as it is based on historical cost while the revenues
reflect the current market price. Such non-synchronization leads to inflated earnings.
Furthermore, a traditional income statement only records transaction and not opportunities.
2.8.3. Cash Flow Statement:
Reports a company’s inflows and outflows of cash. This statement shows whether the
company generated cash or not. Generally, cash flow statements are divided in to three main
parts. Each part reviews the cash flow from one of three types of activities: 1) operating
activities; 2) investing activities; and 3) financing activities. It shows how the company
obtained cash and for what purpose they were used.
2.8.4. Statement of shareholders' equity’s
Shows changes in the interests of the company’s shareholders over time. It is the value that would
be left if a company sold all of its assets and paid off all of its liabilities. In other words, it is a net
worth of accompany. It belongs to the shareholders, or to the owners of the company (Homewood,
1987)

20
 2.9. Accounting for Revenues, Gains, and Support
Not-for-profit organizations have traditionally distinguished revenues, gains and support.
Revenue represent increases in unrestricted net assets arising from bilateral exchange
transactions in which the other party to the transaction is presumed to receive direct tangible
benefit commensurate with the resource provided. Examples are membership dues, program
service fees, sales of supplies and services and investment income. Gains such as realized
gains on investment transactions and gains on sale or disposal of equipment are increases in
net assets relates to peripheral or incidental transactions of the entity and often beyond the
control of management. Support is an increase in net assets arising from contributions of
resources or non-exchange transactions and includes only amounts for which the donor
derives no tangible benefits from recipient agency. (Kattelus, Recr, Wilson, 2005 P-564)
2.2. Review of previous empirical study
Abdul-Rahman, A &Goddard, A. (1998) initiated a study on” An interpretive inquiry of
accounting practices in religious organizations. The study of accounting practices was rooted
in two religious organizations in Malaysia; the research was an attempt to study accounting
practice in a cultural setting. The study also makes a contribution towards the need for
accounting research to become more explanatory of accounting as social practice and is
developed by observation. This is achieved by developing grounded theory from the data and
is in accordance with resent calls for case studies in accounting research to be more
concerned with producing social theories of accounting practice.
Andrew, G., & Mussa, J., A. (2006) study on” accounting and navigating legitimacy in
Tanzania NGOs” observed the phenomenon of accounting in non-governmental
organizations(NGOs). The study seeks to complete accounting processes and reporting
practices in NGOs and the conditions that sustain those processes and practices. The study
reviewed that NGOs have become important institutions in world affairs but accounting
research has not developed significant interest in their operations. The research recognized
the importance of accounting in the process of navigating organizational authenticity.

21
 CHAPTER THREE
3. RESEARCH METHODOLOGY AND DESIGN
3.1. Research Design
The intention of the study was focused on the assessment of accounting practice and its
problems in ERCS Harari Regional State Branch. In order to achieve the objectives of this
study and get relevant and sufficient information on research problem, descriptive survey
design was employed. A descriptive survey design, objectives are predetermined allowing
data collection to be relevant and sufficient to the study problem (Abalang.J.A, 2016).

Both quantitative and qualitative approaches were employed in present study. However, it
was more focused on quantitative approach because exploring the current accounting practice
and its problems in ERCS Harari Regional State Branch is more expressed in a quantifiable
manner. Thus it incorporated in the study only to enrich the quantitative data. Questionnaires
were distributed to collect quantitative data from ERCS Harari Branch experts. Above all,
qualitative research enriches quantitative research as it involves a form of interaction between
the researcher and participants (Gay, 2009). Accordingly, open-ended question and document
analysis were employed to collect qualitative data in order to validate and triangulate the
quantitative data.
3.2. Study Area
The area chosen for this study is ERCS Harari Regional branch, which the first branch
established in 1975 EC, during Ethio-Somali conflict. The office of this branch found in
Harar Town far from 526 KM from the head office which found in Addis Ababa.
3.3. Source of Data
Both primary and secondary source of data were used for this study. Primary data were
collected from the staffs of the ERCS Harari Regional Branch who had direct contact with the
study issue through questionnaire. These sources of data helped the researchers to acquire
firsthand information of the situation under the study and to draw valid conclusion. While
secondary data were collected from different documents, records, regulatory organ reports,
from web site, books, annual reports and magazines, articles and journals which related to
account practice of ERCS to draw the vivid picture about the accounting practice and its
problems in ERCS Harari Regional branch.
3.4. Population, Sample and Sampling Techniques
In research methods, population is the entire aggregation of items from which samples
can be drawn (Kothari, 2012). The total population of the organization is 31 respondents. All

22
of them were selected through census sampling techniques. Because population or the
universe size is small it is no use to resort in to a sample survey. According to Kothari (2012)
Sampling refers to the process of obtaining information about an entire population by
examining only a part of it.
3.5. Instrument of Data collection
3.5.1. Questionnaires
In this study questionnaire was the major data gathering tool. Because, questionnaire is
flexible and can be used to gather information on almost any topic involving large or small
numbers of people. According to Audrey, (2004), collection of data through questionnaire
enables researchers to collect information from a large size of residents within manageable
time, and provides a wide coverage of data. The questionnaires were prepared, in English
Language from the theoretical literature and previous studies. Accordingly, both open and
closed ended items were employed in this study. Closed items of questionnaires were adopted
in the form of affirmative statements, relating to the concepts on major accounting features of
ERCS were worth noting: background information of respondents, basis of accounting,
financial statement, and budgeting system ERCS, source of fund, accounting system and the
problem in accounting practice of the ERCS in case of Harari Branch. Participants were
asked to respond to each item closed and open-ended question. Thus, a total of 31
questionnaires containing eighteen (18) items were distributed to respondents. But 20 (65%)
questionnaires were properly filled and returned from respondents. Generally, questionnaires
were distributed to 31 respondents and 20 copies were returned back.
3.6. Procedures of Data Collection
In order to achieve the objective of the study, the researcher went through a series of data
gathering procedures. The relevant data was gathered by using questionnaires. To accomplish
this task formal latter of clearance and recommendation was granted from Haramaya
University for getting permission. The researcher contacted the head of ERCS Harari
Regional State Branch for consent. After made agreement with the concern participants; the
objective and purposes were introduced to respondents. Then the questionnaires were
administered to sample respondents. The participants allow giving their own answers to each
item independently as need by the researcher. They were closely assisted and supervised by
the researcher himself. Finally, the questionnaires were collected back at the right
appointment.

23
 3.7. Data Analysis Techniques and Presentation
In order to meet the stated research objectives, the collected data was analyzed based on the
nature of the objective. Accordingly, the data collected through closed ended questions were
tallied, tabulated and filled in to SPSS version 20 by consulting statistician and interpretation
was done using frequency and percentage. Furthermore, Wolcott (1994) cited in Creswell
(2003; pp. 184), suggested that qualitative research is fundamentally interpretative i.e. the
researcher makes an interpretation of the data. Thus, the data that collect from the open ended
questionnaires were interpreted qualitatively. To sum, the analysis of quantitative data and
interpretation of qualitative data combines to seek convergence among the results (Creswell,
2003)

24
 CHAPTER FOUR
4. DATA PRESENTATION AND ANALYSIS
4.1 Overviews
This chapter presents and analysis the data obtained from primary source. The first part
describes the background of the respondents, whereas the second part describes about the
accounting practice and its problems of ERCs: in case of Harari Regional Branch. As this
data gathered via questionnaire and document analysis were analyzed and interpreted to draw
findings.
4.2. Background of the Respondent’s
The respondents were asked to indicate their background information through questionnaires.
The details of the characteristics of the respondents are given in Table 1 below.

Table 1: - Background of the respondent’s education, field study and experien

No Item Totals

N %
1 Year of service Below years 2 5 25
2-5 years 10 52
Above 5 years 5 25
Totals 20 100
2 Educational College diploma 8 40
qualification Fist degree 12 60
Totals 20 100
3 Field of study Accounting and finance 7 35
Management 3 15
Economics 3 15
Others 7 35
Totals 20 100
Source: own survey, 2021
As Table 1 above shows educational level 40% are college diploma holders, 60% are firs
degree holders. This shows, among respondents most of them are first degree holder. This
implies that most of the respondents were educated and meaning full and clear
understanding of accounting practice of ERCs.

Regarding the working experience of the respondents, 20% have 2-5 years’ work experience
and 80% have above 5 years working experience of those, most of them have a work
experience between 4 years and above. From this we can say that the organization is

25
dominated by experienced workers that have a powerful effort in carrying their task and also
apply a good accounting practice on the organization

The results of Table 1 item 3 also shows that 35% of respondent’s study accounting and
finance. Whereas 15%, 15% and 35% of respondents studied management, economics and
others respectively. Hence, most of the respondents in this study are professionally qualified
and this can have its own influence for effective accounting practice for business organization
as well as for not for profit organization, Accountants are play an important role in finance
related works. Generally, this company used less qualified employees.

4.3 Accounting and Reporting Practice

The finance department has been asked whether they have a clear understanding of
accounting and reporting practice which is the first question to the respondents.

Table 2: Response on whether they have a clear understanding of accounting practice

No Item Yes No Total
F % F % F %
Do you have clear understanding about the 15 75 5 25 20 100
accounting practice of your organization?
Source; own survey, 202, F-frequency, %-percent
As it can be observed from Table 2 of item, 15 (75%) of respondents said yes and 5 (25%)
of respondents said no. this indicate that the employee of the organization has a clear
understanding of accounting practice. As expressed in a personal detail most employees have
degree holders. Those degree holders have some knowledge in accounting for not-for-profit
organization and financial report cover funds and financial transactions. This is due to the
professional qualification and short term (on job) training given

Table 3: The opinion of respondents concerning the valuation of fixed asse

No Item At cost Current Market Total
fair value price
F % F % F % F %
1 How do you record contributed 15 75 5 25 0 0 20 100
or donated assets?
Source: own survey, 2021, F-frequency, %-percent

26
Regarding item of Table 3, 15 (75 %) of respondents answered the donated or contributed
assets valued on the basis of original cost and 5 (25%) of respondents answered the donated
or contributed assets valued at current fair value. From this it is clear that the donated fixed
assets of the organization valued on the basis of original cost. Cost principle: - cost is the
basis for all accounting entries, accordingly acquisition of goods and services should be
recorded at the actual amount paid for transactions that involve donations which must be
recorded on the basis of their market value or invoice values.

Table 4. The opinion of the respondents concerning accounting method

No Item Modified Accrual Cash Total
cash basis basis basis

F % F % F % F %
1 What kind of accounting method you use 0 0 20 100 0 0 20 100
to record and analyze financial data?
Source: own survey, 2021, F-frequency, %-percent
As it is indicated in the table 4 item, 20 (100%) employees assure accrual basis of accounting
method applicable in the organization. From this data generally the accounting method
usually followed by the entity (ERCs) is accrual basis of accounting. The generally accepted
accounting standard requires that financial statement for NGOs like ERCs be prepared using
accrual basis of accounting. Under accrual method revenue and expenses are recorded
according to when they are earned and incurred, not necessarily when the cash is received or
paid. Even though employees may be paid in the next accounting period for work performed
near the end of accounting period. The expense still is recorded in the current period since the
current period is where the expense was incurred.
Basis of accounting: -ERCs generally follow the accrual basis of accounting. Hence all
revenue is reported in the period in which they are earned and expenses in the period in
which they are in the period in which they are incurred, consumed or expire.

Table 5: The opinion of the respondents about the accuracy of record keeping
No Item Yes No Total
F % F % F %
1 Does your organization reconcile and 20 100 0 0 20 100
update its rescored timely?
Source: own survey, 2021, F-frequency, %-percent

27
As can be illustrated the above Table 5 item, 20 (100%) employees finance department of the
organization assures ERCs reconcile and update its record timely by saying “Yes” no one
respondents saying no. These organizations reconcile and update its record timely, as it is
indicated above. Because ERCs presents all accounting cycle start from journal entry up to
closing entry in the accounting period especially the trial balance

Table 6: The opinion of respondents about the accuracy of record keeping

No Item Yes No Total
F % F % f %
1 Does each transaction is reliable, 20 100 0 0% 20 100
valuable and clear?
Source: own survey, 2021, F-frequency, %-percent
As can be seen in the above table 6 item, all employees in finance department or 20 (100%)
respondents assures each transactions are reliable and clear by saying “Yes”. No one
respondents saying no. from this the researcher understands the organization use systematic
recording of transactions to provide clear and more reliable transactions. If the transaction is
reliable and clear it is easy to develop reliable and relevant financial statement. The financial
statement used to provide information to the users for rational decision making. It is essential
to the organization to get additional fund from internal and external donors. Systematic
recording of transaction: - the basic objective of accounting is to systematically record the
financial aspects of business transactions (i. e bookkeeping). These recorded transactions are
later on classified and summarized logically for the preparation of financial statements and
for their analysis and interpretation (Parkinson, Alan, 2013).

28
4.4 Financial Statement
The questions rose for the finance department of ERCs about the financial statements. The
following tables presented the response of respondents.
Table 7: Response on financial statement
No Item Balance sheet, Statement of Total
statement of revenue and
revenue and expenditure
expense
F % F % F %
1 What type of financial statements 18 90 2 10 20 100
do you produce?

Source: own survey, 2021

As it is indicating in the above table 7 item from 20 employees 18(90%) assures the
companies prepare the financial statement of financial position and statement of activities and
expense 2 (10%) said the organization prepares statement of revenue and expenditure. From
this we can conclude that the companies prepare balance sheet, statement of revenue and
expense. Those financial statements are prepared to meet the needs of the financial users like
donors or directors presenting the total assets, liabilities and net assets. Statements like
income statements; balance sheets that are commonly produced show the financial position of
the entity and changes in net assets.

Generally, ERCs records both balance sheet and statement of activities and the net assets as
restricted net assets (highly by donors on these net assets). But FASB reported net assets in
all categories of net assets and reports all financial statements.

Table 8: The opinion of respondents about the reliability and relevance financial statement
No Item Yes No Total
F % F % F %
1 Is your financial statement reliable and relevant? 20 100 0 0 20 100
Source: own survey, 2021, F-frequency, %-percent

As can be seen in the above table 8 item, 20(100 %) said yes and no respondents said no
from this we can conclude that financial statement of the organization is reliable and relevant.
The financial statement of ERCs is relevant because they produce reports to the donor and

29
other stakeholders on time with complete information whereas the financial statement is
reliable because there is sufficient segregation of duties. This segregation of duties creates the
employee works based on their specialization.

Table 9: Response on disclosure on financial statement

No Item Yes No Total

F % F % F %

1 Does your financial statement include disclosure of 15 75 5 25 20 100

promise to give?
Source: own survey, 2021, F-frequency, %-percent

As can be seen from table 9 item no 9.1from 5 employees 15 (75 %) of the respondents fill
promise to give is disclosed in the financial statement and the remaining 5 (20%) said No.
from this we can conclude the organization disclose of promise to give. It means that
disclosures include principles applicable to for not-for-profit entities for detail of promises to
give that create clearly on the financial statement to the users. Disclosures if unconditional
promises to give are not measured at fair value in the statement of financial position but for
which the fair value is disclosed (public entities only). Unconditional promises to give are
recorded as revenue when the promise is made. (Neely D, 2014)

A conditional promise to give depends on the occurrence of a specified future and uncertain
event to binder the promissory shall be recognized when the conditions on which they depend
are substantially met. That is when the conditional promise becomes unconditional.A
conditional promise to give is recognized as revenue when it becomes unconditional.
Unconditional promise to give is a promise to give that depends only on passage of time or
demand by the promise for performance. An unconditional promise to give is recognized as
revenue when received. (Duncan, 2014). All pre or post-balance sheet date events that are
significant enough to influence the decisions of financial statement users should be disclosed
either within the body of financial statement or in the form of supplementary notes to the
financial statements.

30
 Table 10: Response on the record it gifts in kind
No Item Yes No Total
F % F % F %
1 Do you record gifts in kind? 20 100 0 20 100
Source: own survey, 2021, F-frequency, %-percent
As can be seen in the above table 10 items, 20 (100%) employees which works in finance
department assures that the organization records gifts in kind. ERCs received different gifts in
kind. Among thus, stationery material, furniture, building, lands etc. Those donations are
granted by either local or foreign donors. If the donor makes a contribution of those assets,
the contribution reported as restricted assets. This is disclosing on the ERCs financial
statement. But according to FASB, the contribution of this type of assets may be reported as
unrestricted or permanently restricted and temporarily restricted asset. Those assets are
disclosed on the financial statements.
Table 11: Response on how do you record gifts
No Item As contribution As expense for Both Total
revenue for gifts gifts made to other
receives.
F % F % F % F 0
1 How do you record gifts? 0 0 0 0 20 100 20 100
Source: own survey, 2021, F-frequency, %-percent

As can be seen above table 11 item, 20 (100%) of employees in the finance department of the
organization assures the organization records the gifts in both system the systems are as
contribution revenue for gifts received and as expense for gift made to other.The company
record gifts as a contribution revenue during the time of gifts received from donors. Whereas
at the time of contribution made the company records as expense for gifts made too other. As
a result of the basic income of NGO is donation the ERCs receives this donation and
considered as revenue and the donation is made to others, it is considered as expense. FASB
also records contribution received as revenue contribution made to other considered as
expense

4.5. Budgeting System ERCs

Regarding this specific issues, the organization budgeting system, budget variations and its
effect on reporting practice have been replied as follows:

31
Table 12: The opinion of respondent regarding to the budgeting system
No Item Yes No Total
F % F % F %
1 Do you use budget for a given period 20 100 0 0 20 100
of time?
Source: own survey, 2021, F-frequency, %-percent

As we can see table 12 item, 20 (100%) employees assures the organization use budget for a
given period of time by saying yes. The responses given indicate that the organization
prepares a budgeted fund at the beginning of fiscal period to provide service with available
resources.
Table 13: Opinion of respondents regarding to the budgeting system
No Item Yes No Total
F % F % F %
1 Does variation exists between budgeted 6 30 14 70 20 100%
and actual activity?
Source: own survey, 2021, F-frequency, %-percent

As it is indicating in table 13 item, from 20 employees 14 (70%) by saying “No” assures

there is no variation in budgeted and actual amount, the remaining 6(30%) said yes. From this
we can conclude the organization not usually faces deviation (variation) between the
budgeted and actual amount. This shows the effective and efficient utilization of the budgeted
resources and activities performed.

Table 14: Opinion of respondents regarding to the budgeting system

No Item YES No Total
Do variations (if any) have in effect F % F % F %
on reporting practice?
0 0 20 100 20 100
Source: own survey, 2021, F-frequency, %-percent

As it is indicating in table item, 20(100%) of respondents assured by saying “No” there is no

effect in the reporting practice and no one said “yes”. From this we can conclude there is no
effect on the reporting practice of the organization. As a result, the donors usually keep their
promise for the better performance of the entity.

32
Table: 15. The opinion of the respondent regarding to organization source of fund.
No Item Yes No Totals
F % F & F %
1 Is there any failure from promised donors of funds 1 20 17 80 85 100
for your planned project?
Source: own survey, 2021, F-frequency, %-percent

As can be seen in the above table15 items, 17(85%) respondents said “No” and the remaining
3 (15%) said “yes “the source of funds is donations, societies, government organization and
internal activities. This shows the source of fund is very few and usually depends on external
bodies. On the other hand, the prominent source the organization are the donors if promised
donors fail to keep their promise do not have effect on the accounting treatment of the
organization and the planned project. ERCs financial statement is relevant and reliable most
of the time the donor keeps their promise and the organization can get other funds because
they have reliable and relevant financial statements. If promised donors fail to keep their
promise do not have any effect on the planned project because the organization uses their
funds interchangeably.

4.6. Accounting System

Table16: the opinion of respondents regarding to the organization accounting system,
No Item Manual Automated Total

F % F % F %
1 Which type of accounting system used by your - - 20 100 20 100
organization to provide financial information?
Source: own survey, 2021, f-frequency, %-percent

As can be seen in table 16 item, all respondents or 20(100 %) employees assured ERCs use
automated accounting system to provide financial information. This shows the organization
provide financial information by using automated or computerized accounting system..
Automates (computerized) accounting system is that fewer employees are needed to process
data usually process large amount of data more effectively than people can do.

33
 4.7. Recording Technique
The bookkeeping process of ERCs is based on double-entry system of recording transactions
in that each transaction, no matter how simple or complex it might be analyzed in terms of its
dual effect, viz. debit and credit.
Table 17: To know about entry system
No Item Single entry Double entry Total
F % F % F %
1 Which type of accounting system - - 5 100 5 100
use for record?
Source: own survey, 2021, F-frequency, %-percent

From the table17 above item , all of respondents or 100 % (20) say double entry system no
one respondents saying single entry system. So that from the above data we can conclude that
organization uses double entry accounting system in their work (taste) of recording.

The double entry accounting system is scientific system which enables the organization to
better understand the contact of financial system. In the double entry accounting system each
transaction is recoded with at least one debit and credit. Double entry accounting system
helps prevent errors by assuring that debits and credits for each transaction are equal.

34
 CHAPTER FIVE
5. SUMMARY OF FINDINGS, CONCLUTION AND RECOMMENDATION
5.1. Summary
The study has tried to see and explain the accounting practice and its problem in the case of
ERCs. The researcher has tried to use primary source of information from the selected
employees by distributing self-administered questionnaires from 31 questionnaires has been
disseminated (20) questionnaires responded successfully. Generally, the researcher has
observed the following summary from the data analysis.
 ERCs employees have clear understanding of accounting practice of their
organization and financial report covering all funds and financial transactions.
 Fixed assets are valued at their original costs and the organization uses accrual basis
of accounting, thus revenue is reported when materials or services are received.
 ERCs has a better record keeping system, this, recording, summarizing and evaluating
process are accurate.
 Financial statements are prepared to meet financial users which are relevant and
reliable to those parties.
 the organization has computerized accounting system to accomplish their activities of
recording, summarizing and evaluating and reporting of financial transactions that
guide their operation includes all the necessary relevant information.
 The prominent source of funds of ERCs is donations (contributions), internal
activities, Societies and government.
5.2. Conclusion
The researcher has tried to study and explain the accounting practice of ERCs, so, in order to
generalize of the study.
 ERCs employees (respondents) who attend higher education (degree holder) is very
less and these decrease the qualification of the respondents for their profession so this
leads to affect the accounting practice of the organization. But the employees are
35
 experienced in doing long time for this reason they can understands the accounting
practice and financial reports covering all funds and financial transactions.
 ERCs recognize gift in kind and records at their original cost. The ERCs has been
preparing only two types of financial statement financial position and statement of
activities only.
 The organization uses accrual basis of accounting for recognition of revenue and
expenses. Net assets recorded as restricted and unrestricted net assets using accrual
basis of accounting. These organizations reconcile and update its record timely.
Financial statements are prepared to meet financial users and financial reports are
prepared periodically because to control financial operations and to satisfy the end
users like donors, governments.
 The ERCs disclosed both conditional and unconditional promise to give in its
financial statements.
 Until the promise is made both conditional and unconditional promise to give is
considered as receivables.
5.3. Recommendation
Over all activities of the organization have been tested in the examination of accounting
practice and its problem the following points are important for the improvement and
wellbeing of the entity.
 Majority source of funds of the organization is donations (contribution) and
government i.e. if there is no donation the organization will stop in the operation so to
avoid dependency ERCs should concentrate more on internal activities and fund
raising options.
 Donated fixed assets are valued at their original costs, but, the general rule for
recording fixed assets account is current fair market value or net appraised value.
Because it helps the organization to deduct depreciations that was recorded in the
memorandum forms. So, valuation of fixed assets at their current fair market value
should be considered.
 Preparation of financial statements should be standardized. ERCs mainly concerned
with preparation of statement of revenue and expenditure and balance sheet. But,
FASB illustrates financial statement to include statement of financial position,
statement of activities, statement of cash flows and financial statement disclosures.

36
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Abdul-Rahman, A. and Goddard, A. (1998) An interpretive inquiry of accounting practices in
religious organizations, Financial Accountability and Management, 14 (3): 183-201.
Andrew, G. & Mussa, J. A. (2006 Accounting and Navigating Legitimacy in Tanzanian
NGOs, Accounting Auditing & Accountability Journal 19 (April):377-404
DOI:10.1108/0951357061067034
Bazley, J. D., Nikolai, L. A., & Jones, J. P. (2010). Intermediate accounting.
Edward, S., & Robert J. Freeman, (1998) Fund accounting theory and practice 7 the ed.
Englewood Cliffs
ERCS (2015).Ethiopian Red Cross Society Strategic Plan 2008-2012(E.C.),[July 2015-June
2020], June, 2015; Addis Ababa, Ethiopia.
FEES & Warren (1989). Principle Accounting (16 th E.d), Fintinne Printing and Publishing
S.C
Getahun. S, (2011). Assessment of Accounting System in Jimma University. Un published
senior Essay, Jimma University
Kattelus, S., Reck. J, & Wilson, S. (2005), Accounting for Governmental and Non-profit
entities, 14th edition, McGraw-Hill,Inc, New York.
Kermit, D. Larson (1990) Fundamental accounting principles, 3 rd edition. Homewood.

Kothari, R. C. (2004). Research methodology: Methods and Techniques (2ned.). New Delhi:
New Age International (p) Ltd. Publishers.
Larson E.J, (2005), Modern Advanced Accounting (10th E.d.). ISBN-13 978-0072922554
Publisher McGraw-Hill/Irwin
Leon E. Hay & R.Wilson,(1997) Accounting For Governmental and Non Profit Entities 8th
Ed.
M, PHILL (2014), Accounting Practice in Brazil. http:// www.investopedia.com

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Paul, C., & John, H. E., (2007), Essentials of Accounting for Governmental and Not-for-profit
Organization,8th edition, McGraw Hill,Inc, New York
Regina,E. H., & Densie, N.(1994) Financial accounting and managerial control nonprofit
organization. South-Western Pub, P 1-2.
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Series, vol. 5, Sage publication

38
 APPENDIX
HARAMAYA UNIVERSITY
COLLEGE OF DISTANCE AND CONTINUOUS EDUCATION
DEPARTMENT OF ACCOUNT AND FINANCE
I am undertaking a research on the topic Accounting Practices of Ethiopian Red cross
Society (ERCS): in case Harari Regional State Branch. ,as part of my BA degree partial
fulfillment requirement in Account and Finance at Haramaya University.This information is
going to be used as a primary data and has significant impact in making a good conclusion
and recommendation for future accounting practice.Your participation to this research study
is voluntarily. The researcher is hoping for honest and genuine responses that will contribute
vastly to the quality of the findings of this study. Therefore the researcher would like to
kindly ask you to complete this questionnaire as truthfully as possible and inform you that the
responses you provide will be kept strictly confidential and used only for academic research
purpose. Your transparency and on time delivery of the response makes this study successful.
I thank you for your valuable time and patience to complete all questions and return it back
on time. Hamza Dawid email address: hamzadawid22@22gmail.com. Phone.No
+251913430168
General Direction
No need of writing your name;
Put “X” mark in the appropriate space or circle the choice you select whenever
necessary
Part I: Background of respondents
1. Year of service
A) Below years 2
B) 2-5 year’s
C) Above 5 years
2. Educational qualification
A) College diploma
B) Fist degree
C) Master and above
3. Field of study
A) Accounting and finance
B) Management
C) Economics
39
Part II: General Issue yes no
1. The accounting practice of Ethiopian Red Cross society in Harar branch?
1.1. Do you have clear understanding about the accounting practice of your organization?
1.) yes 2.) no
1.2. How do you record contributed or donated assets?
1) At cost,
2) Current fair value,
3) Market price
1.3. What kind of accounting method you use to record and analyze financial data?
1) Modified cash basis,
2) Accrual basis,
3) Cash basis
1.4. Does your organization reconcile and update its rescored timely?
1) yes 2) no
1.5. Does each transaction is reliable, valuable and clear?
1) yes 2) no
2. The financial statements of the organization
2.1. What type of financial statements do you produce?
1) Balance sheet,
2) statement of revenue and expense,
3) Statement of revenue and expenditure
2.3. Is your financial statement reliable and relevant?
1) yes 2) no
2.4. Does your financial statement include disclosure of promise to give?
1) yes 2) No
2.5. Do you record gifts in kind?
1) yes 2) no
2.6. How do you record gifts?
1) As contribution revenue for gifts received,
2) As expense for gifts made to other
3. the consequence of accounting practice
3.1. Do you use budget for a given period of time?
1) yes 2) no
3.2. Does variation exists between budgeted and actual activity?
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 1) yes 2) no
3.3. Do variations (if any) have in effect on reporting practice?
1) yes 2) no
3.4. Is there any failure from promised donors of funds for your planned project?
1) yes 2) no
3.5 Which type of accounting system used by your organization to provide financial

information?
1. Manual
2. Automated
3.6 Which type of accounting system use for record?
1. Single entry
2. Double entry
3.7. The problem in accounting practice of the ERCS in Harari regional branch?

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